Amazon sells off China cloud assets as tough new rules bite

BEIJING (Reuters) - Amazon.com Inc is selling off the hardware from its public cloud business in China, amid tightening regulation over online data that is creating a hurdle for technology firms operating in the world’s second-largest economy.

FILE PHOTO: The logo of the web service Amazon is pictured in Mexico City, Mexico on June 8, 2017. REUTERS/Carlos Jasso/Illustration/File Photo

Beijing Sinnet Technology Co Ltd, Amazon’s China partner, said in a filing late on Monday that it would buy the U.S. firm’s Amazon Web Services (AWS) public cloud computing unit in China for up to 2 billion yuan ($301.2 million).

“In order to comply with Chinese law, AWS sold certain physical infrastructure assets to Sinnet,” an AWS spokesman said on Tuesday, adding AWS would still own the intellectual property for its services worldwide.

“‎We’re excited about the significant business we have in China and its growth potential.”

Chinese regulators are tightening rules on foreign data and cloud services, implementing new surveillance measures and increasing scrutiny of cross-border data transfers. Laws that came into effect in June require firms to store data locally.

“This move is mostly around regulatory compliance,” said Charlie Dai, Beijing-based analyst at Forrester Research. He added the move was necessary for AWS to build up its other business areas in the market.

AWS has a separate hardware venture in partnership with the Ningxia provincial government in China’s northwest. Amazon said on its website that its public cloud services in the country are exclusively managed by Sinnet.

Amazon’s cloud business in China already faced tougher rules due to China’s tight internet controls. In August, Sinnet told customers it would shut down VPNs and other services on its networks that allow users to circumvent China’s so-called Great Firewall system of censorship, citing direct instructions from the government.

The move casts a shadow over similar foreign ventures in the country. Microsoft Corp, Oracle Corp and IBM Corp are also facing tough new regulatory challenges in localizing their data storage units.

Global firms in China, including Apple Inc, have this year transferred data to Chinese ventures overseen by local authorities. Microsoft operates its Azure cloud services unit in partnership with China-based 21Vianet Group.

“We expect other foreign players, such as Oracle and IBM, will also ensure regulatory compliance as long as they want to provide public cloud services in China,” said Dai.

Microsoft, Oracle and IBM did not immediately respond to request for comment on Tuesday.

Cloud services have become a crowded and competitive field in China in recent years, with Alibaba Group Holding Ltd’s cloud unit opening over a dozen overseas data centers since 2016.

Chinese firms account for roughly 80 percent of total cloud services revenue in China, and roughly half of the data center market in 2017, according to Synergy Research Group.